Silverstein Irks Those Libeskinds On Tower’s Fees

On June 2, the Lower Manhattan Development Corporation will formally adopt plans for rebuilding at Ground Zero that will allow Tishman Construction to begin its assignment on the first stage of the project: the 1,776-foot Freedom Tower.

With that stamp of approval, subcontracts for excavation and foundation work will be let out; huge, intertwined steel cables will be used to connect the bedrock of the 16-acre site with the slurry wall that keeps the Hudson River waters out of the future foundation of the new World Trade Center.

And by Independence Day, according to Governor George Pataki, the spade will hit the dirt at Ground Zero, and the Freedom Tower will begin its slow ascent to the topmost point of the Manhattan skyline.

For Tishman’s employer, World Trade Center leaseholder Larry Silverstein-along with the site owner, the Port Authority of New York and New Jersey-there is sure to be public jubilation.

But behind the scenes and with just one month left before the 73-year-old Mr. Silverstein steps up and throws his weight on the golden shovel, the developer finds himself entangled in a dizzying web of financial stopgaps, bitter feuds with architects and scrambling to reassure his landlord he’s the man to rebuild.

A series of letters-obtained by The Observer -that the Libeskinds and their lawyer sent to the Silverstein camp over the course of the last month reveal just how personal this dispute has become, and how hard feelings from last year’s design conflict are still lingering.

Genius Fee?

As The Observer first reported on May 28, Ground Zero master planner Daniel Libeskind claims Mr. Silverstein owes his firm upward of $600,000 for the architectural planning work it did on the Freedom Tower. Mr. Silverstein has offered around $125,000, a figure that the Libeskinds called “almost insulting,” and which they claim is retaliation for the way their vision for the tower clashed with that of Mr. Silverstein’s architect on the project, Skidmore, Owings and Merrill’s David Childs. Mr. Silverstein countered that the Libeskinds never submitted verifiable time sheets for their work. Though the two sides are still talking, the Libeskinds are holding out the threat of a lawsuit.

And while it’s unlikely that such a suit would derail the July 4 groundbreaking, it could nonetheless poison the event for Mr. Silverstein and Governor Pataki-who is staking his political career in large part on the rebuilding of Ground Zero-especially if the Libeskinds were to speak up about their bitter feelings, as they have done in the past.

The billing dispute has its origins in the July 2003 power-sharing arrangement on the Freedom Tower’s design that effectively made the Libeskinds supporting consultants to the lead architect, David Childs. In the months that followed, a bitter dispute over the contours that the new building would assume took shape-largely in the pages of local newspapers. By December, however, they forged a compromise that drew on elements of both sides’ original designs for the Freedom Tower, but which was widely interpreted as owing much more to Mr. Childs’.

The Libeskinds now say that Mr. Silverstein is retaliating against them for their attempts to shrink and taper Mr. Childs’ design so it would adhere to the master plan of the site.

“One can only assume that the almost insulting amount offered by you for our conceptual and design effort is in retaliation for our refusal to accept a building which was grossly out of scale and not in compliance with the master plan,” Ms. Libeskind wrote to Mr. Silverstein in a May 7 letter.

On May 20, the Libeskinds’ lawyer, Ed Hayes, sent a letter that accused Mr. Silverstein of trying to benefit from the planned public investments around the site-in the form of increased street connectivity and a new Fulton Street transit hub-without abiding by the directives of the master plan concerning building height and bulk.

“It is the position of my clients that you are refusing to pay them because while you hired them to help design a building that was consistent with the Master Plan, you, in fact, wanted to receive the benefits of public investment but not conform to the public interest,” he wrote. “Your refusal to pay is in retribution for the refusal of the Libeskinds to participate in this scheme.”

A spokesman for Mr. Silverstein downplayed the accusations, saying the developer is “fully prepared to fairly compensate” the Libeskinds for their work. However, both sides are far apart on just what would amount to fair compensation. Ms. Libeskind said it is her firm’s standard practice to bill their clients for a percentage of the building’s total cost, but in this case, they didn’t insist on signing a contract before beginning their work.

“It’s primarily because Silverstein said he didn’t want to, and at the time we didn’t have a lot of choice,” said Mr. Hayes. “There was tremendous pressure to get it done.”

By their own reckoning, the Libeskinds say they are entitled to around $600,000 for their efforts. Mr. Silverstein, however, has countered with around $125,000 and insists on seeing time sheets to account for the work. He also thinks the Libeskinds have already been largely compensated for their efforts: They have already received $2.25 million from the Lower Manhattan Development Corporation for their work as master planners on the site.

“It would be unfair to the government and Mr. Silverstein for Mr. Libeskind to be paid twice for his Freedom Tower idea,” Mr. Silverstein’s spokesman said in his original statement. In sum, Mr. Silverstein’s organization was charging the Libeskinds with double-billing: Having produced the master plan that determined the contours of all building on the site, the architect wanted to collect creative fees from everyone who built within its guidelines. One tabloid called the charge a “genius fee.”

It is Mr. Hayes’ contention that Mr. Silverstein is not only trying to punish the Libeskinds for the past dispute, but also discourage them for raising similar objections in the future, when they again may collaborate on the next skyscraper to rise at the site.

“By penalizing the Libeskinds, he puts a damper on the creative voice enforcing the master plan,” Mr. Hayes said. “That serves Silverstein’s aims by making it easier to evade the master plan, which makes it easier to build bigger [and more lucrative] buildings.”

Mr. Silverstein has offered to settle the dispute in mediation, but the Libeskinds rejected that offer, because mediation is neither under oath, nor binding. Nevertheless, both sides hope to come to a resolution soon.

But even assuming that the Libeskinds do manage to come to terms with Mr. Silverstein before July 4, the episode has the potential to leave a bad taste in the mouths of Mr. Silverstein’s landlord at the World Trade Center, the Port Authority, which is in the process of evaluating whether or not to allow Mr. Silverstein to develop the rest of the buildings planned for the site.

I Can Pay the Rent! I Can Pay the Rent!

Even before the billing dispute became public, the Port Authority requested from Mr. Silverstein a formal accounting of how he will accomplish three things pursuant to his 99-year lease of the site: continue making rent payments of $10 million per month; pay a large share of the site’s estimated $1 billion in underground infrastructure costs; and continue to build an eventual total of 10 million square feet of office space on the site, on a pace set by market demand.

“It’s a question of Larry giving us some kind of comfort level, about how he would move forward,” said Port Authority vice chairman Charles Gargano.

The formal request came in the wake of a major courtroom battle that Mr. Silverstein lost against most of his insurers for the Twin Towers, which cut Mr. Silverstein’s available rebuilding funds down to a maximum of $3.5 billion to $4.6 billion. He had sought a double payout of $7.1 billion. Having already spent about half of those available funds on mortgage buyouts and lease payments, in addition to his own management and legal fees, Mr. Silverstein may run out of money after building the $1.6 billion Freedom Tower.

“We on the executive committee have what we call in legal terms ‘anticipatory responsibility,'” said Mr. Gargano. “We have a fiduciary responsibility to our shareholders, so we have to anticipate what might happen if he only gets $3.5 billion, and then consider different scenarios.”

A Silverstein building official expressed strong confidence that Mr. Silverstein would be able to use Liberty Bonds and to borrow against the equity in the Freedom Tower to help obtain traditional financing for the next building planned for the site.

“Everyone in New York is accustomed to thinking you can only build with an anchor tenant, but that’s not true when you’re building with insurance proceeds,” the official said. “There’s a lot of value in those buildings. That much equity will allow you to borrow substantially.”

Perhaps. But in the meantime, Mr. Silverstein has a skyscraper to start on July 4. At this point, according to a building official in the Silverstein camp, advanced architectural plans exist for the major structural and foundational parts of the 2.8 million-square-foot tower, whereas blueprints do not yet exist for parts of the building that can wait until its frame is largely finished. That is par for the course for a mammoth building like this, the official said.

“For a project of this magnitude and length of schedule, you wouldn’t delay it; you don’t wait for every design blueprint down to door handles,” the official said. “You’d want it started as soon as possible so the rent we’re paying can start to yield some tenants.”

To date, both the Port Authority and Governor Pataki have expressed strong interest in being the tower’s first tenants, and will together take up around 750,000 square feet, or about 30 percent of the building.

The building official estimated the eventual cost of the building would top out at somewhere north of $1 billion, but other construction experts predict that unexpected delays could easily push that figure toward $1.5 billion. Either way, Mr. Silverstein will be paying for it completely in cash, from his insurance proceeds, whatever they end up totaling.

“There is no borrowing on this building,” said the building official.